Fortescue Facing More Headwinds

By Glenn Dyer | More Articles by Glenn Dyer

Lower shipments, higher costs and falling prices – not the best of combinations for iron ore miner Fortescue Metals Group as it enters the final three months of the 2017-18 financial year.

In fact without a sharp rise in prices and shipments this quarter, the company will be looking at a weaker result for the year to June.

Fortescue Metals reported lower iron ore shipments for the third-quarter, due to cyclone activity impacting port operations and wet weather at its WA mines.

The Pilbara miner shipped 38.7 million tonnes of iron ore in the three months to March 31, down 2% from the 39.6 million tonnes recorded a year earlier, and also down 4% on the second-quarter.

Cash costs, at $US13.14 ($A18.40) per wet metric tonne, were up 1% from a year earlier and rose 9% on the second-quarter thanks to the weather problems, the impact of the Australian dollar and the rising cost of fuel.

“Mining, processing, rail and shipping performance was broadly in line with expectations and lower than the previous quarter due to cyclone activity impacting port operations together with planned extended maintenance, equipment downtime and wet weather at the mines," Fortescue said in a statement on Tuesday.

The company said shipments for the full year remain on target at around 170 tonnes.

CEO Elizabeth Gaines said the miner continues to generate strong margins from the “lowest end of the global cost curve.”

“Profit margins for China’s steel mills have declined from the peaks reached in the December 2017 quarter and there are now signs that steel mills are refocussing on costs resulting in increased demand for Fortescue’s high value-in-use lower iron content ores,” the company said in the quarterly report.

In March, the miner cut the amount it expects to receive for its iron ore over the 2018 financial year on the back of slowing Chinese construction and the emerging cloud of a US-China focused trade war.

The company said it now expects to get 65% of the 62% iron ore index price as measured by the Platts information service. That’s down sharply from previous guidance of 70% to 75% and a big drop from 75%-85% the company was expecting a year ago.

Iron ore prices peaked in the first quarter at around $US79 a tonne for 62% iron ore (Metal Bulletin Index) and are now down around $US67.70 a tonne. Fortescue’s 58% iron oxide content ore sells for a discount to that price or around $US56 a tonne on Tuesday.

Fortescue shares fell 2.3% on Tuesday to $4.57.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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